Authors

France Križanič

Jan Žan Oplotnik

Alenka Kavkler

Vasja Kolšek

CRM Capacity remuneration mechanism as a response to market situation in electricity production

Gospodarska gibanja 476

Abstract:

CRM (Capacity Remuneration Mechanism) was developed in the period after the shift in acquiring electricity supply from an infrastructure to a market based activity. In these new circumstances and conditions CRM soon became one of the most important instruments for balancing and regulating the market, which is characterized by a very rigid demand and slow response of supply with limited capacities (cobweb). By coordinating the adjustment capabilities over a long period, using CRM can accommodate increased demand. The most recent wave of imbalances in the electricity market (extremely low prices for certain "green" manufacturers due to state subsidization; the high cost structure of most "traditional" electric power producers) has deeply affected the Slovenian producers of these necessary goods. The consequences of this shift will be reflected in the long run, particularly in terms of limiting Slovenia's energy stability and self-sufficiency and a decline in capacities at home, as well as greater energy dependence, while electricity prices for the final consumer are projected to rise. The instability of the market and thus a strong need to introduce CRM in Slovenia can also be seen in the discrepancy between electricity prices in wholesale and retail trade (in the period after the year 2011 the correlation of the dynamics of these prices on the Slovenian electricity market reaches -0.7). Since 2011, the same reasons have led other major EU Member States, such as Germany, to introduce CRM. In addition, an important argument for the establishment of CRM, which is designed to maintain a sufficient level of capacity for electricity production in Slovenia, is the cost connected to possible emergency-related electricity shortages. The analysis in this research shows that in the case of a four-hour failure in electricity supply (a so-called “black out”) the Slovenian economy would lose between 29 and 146 million euros while longer (48-hour) periods of electricity supply failure would cost the country's economy up to several hundred million euros.Slovenian and EU legislation already provide a basis to introduce CRM. In accordance with its Energy Act, Slovenia is in a position to introduce CRM in a “centralized capacity market” form.Key words: Market Structure and Pricing, Electric Utilities, Energy and Macroeconomics

JEL: D40, L94, Q43

Full article is available in Slovenian language.

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